When running a Forex signals service, the signals provider is faced with how they are going to track performance. After all, the signals performance is what most people want to see when deciding to join or not.
But it is very hard to decide on one measure of performance that puts the trading in proper perspective for every trader. The point is, presenting performance in terms of dollar amounts, percentages and even pips has its drawbacks.
But that is not going to be true for someone trading a smaller account with different money management. So, in my opinion, dollar amounts are not a fair performance tracker. This would only be true if they were using the exact same money management strategy. They might have made half that percentage, or double.
So again, percentage gains are specific to the money management being used, and not a universal performance measurement. However, even measuring in pips has it drawbacks in terms of putting the trading in perspective for each signals user. Therefore, when adding Forex Target Signals to the Forex Investing Live Signals portfolio, I decided to do something different when it comes to measuring performance. I am going to measure performance using R-Multiples.
Measuring trading performance by R-Multiples is not something I created. The credit goes to Dr. Van Tharp, a world leader on position sizing and trading psychology.
When we place a trade, we also place a stop loss. Regardless of whether you look at this stop loss value in terms of money, percentage of your account or pips, this is the amount you are risking when you place the trade.
Therefore, the amount you are risking is the value of R, or 1R. Now you have something to measure the reward of the trade against. This in itself is an excellent way to look at and measuring trading performance. It can even be key in finding a successful trading strategy.
Van Tharp describes the secret of successful trading: The golden rule of trading is to keep losses at a level of 1 R as often as possible and to make profits that are high-R multiples. In other words, make more money on winning trades than you lose on losing trades. In order to be profitable as a Forex trader, all you need to do is make more money on winning trades than you lose on losing trades. To do this, you need to trade in a way where you have a positive risk to reward ratio.
Forex Target Signals focuses on risk to reward. Only trades with a positive starting risk to reward are taken. When we have a losing trade, that will be -1R. Therefore, if we placed 10 trades and 5 were losers and 5 were winners, it would look like this….
As you can see, the goal in this example is to make twice as much on winning trades as we lose on losing trades. If we win the same amount of trades as we lose with this 1: Trading is not as clean as this in the real world. There will be trades where we make 1. There will be trades where we make 4R. There will also be trades where we manually close the trade for some reason with only 0.
So, there will be a wide range of R-Multiples on our winning trades. But as long as we strive to make R-Multiples greater than our 1R risk… we should be profitable over the long term.
In conclusion, we are not going to be tracking the performance of Forex Target Signals in terms of dollar amounts, percentages or even pips. We are going to be using R-Multiples. We are going to be comparing the amount risked versus the amount gained. A full loss will be -1R and a win will range anywhere from 0. We feel this is a better way to track our performance and express the strength of our trading strategy. At any rate, this is a way of tracking performance that should be explored.
Our Favorite Broker -. Forex Target Signals Tags: Edward Lomax Edward Lomax is a Forex blogger and educator. Edward Lomax When running a Forex signals service, the signals provider is faced with how they are going to track performance. After all… All traders do not start using the signals at the same time All traders do not have the same starting balance in their account All traders do not use the same amount of risk for each of the trades All traders, even though warned against it, do not trade the signals in the same way The point is, presenting performance in terms of dollar amounts, percentages and even pips has its drawbacks.
In Conclusion In conclusion, we are not going to be tracking the performance of Forex Target Signals in terms of dollar amounts, percentages or even pips. Our Favorite Broker - -. Popular Posts Related Posts.
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